A Hundred Grand Lost On an Employment Contract

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The Investment Doc has chosen the road less traveled in recent years. He’s building and growing his own medical practice in Texas as an internal medicine physician. Roughly five years into this venture, he’s seen some growth, and along with growth comes growing pains.

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He did not anticipate having major issues with another physician, but that’s what happened. He tells the story of how and why the contract he had with this doctor set him up for failure, and what changes he’s made to ensure it will never happen again.

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We all had to sign an employment contract before starting work. My first physician employee, I had a very brief two page agreement between us. Luckily, this first employee turned out to be amazing and it did not end up coming back to haunt me so far.

For my second physician employment contract, I hired a lawyer. I wanted to make the agreement as formal as possible. However, even getting a lawyer to write up the agreement, I still left myself open to lots of loopholes by someone who borderline took advantage of my kindness.

By the time everything was said and done, I was out about $100,000 in salary plus overhead below what this person brought in for collections. Here is what went wrong.

Deciding On Payment Structure

I made a deal with this physician employee #2. I would take 40% of collections for overhead and another 5% beyond this for my profit. Sounded pretty good to me at the time since my overhead was somewhere around 30% and as low as 25% some months

The other payment structure that this physician was interested in was flat salary plus an incentive bonus. Since I did not have a lot of money coming in to support this at the time, I decided against the flat salary of around $10,000 a month with incentive bonuses on top of this.

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